US stocks ended higher on Tuesday after a choppy trading session and Treasury yields were mixed ahead of the Federal Reserve’s latest monetary policy decision.
The US central bank is widely expected to announce it will raise interest rates by half a percentage point, the first increase of that size since 2000, in an effort to fight inflation. US consumer prices rose 8.5% in March, the fastest pace since 1981.
Futures markets are trading half a point higher at the next three policy meetings in June, July and September, with the Fed’s key interest rate projected to end the year at around 2.9%, from between 0.25 and the current 0.5%.
The yield on the two-year Treasury note, which moves with interest rate expectations, rose 0.04 percentage point to 2.77 percent.
While short-term yields were higher, longer-term ones fell, flattening the yield curve. The yield on the 10-year note, a benchmark for asset prices and lending rates around the world, softened to 2.98 percent; it hit 3 percent on Monday for the first time since 2018.
On Wall Street, the blue-chip S&P 500 index ended the day 0.5 percent higher and the Nasdaq Composite rose 0.2 percent. Trading volumes on the Nasdaq were 10.4% below the 100-day average and 1.7% below the 100-day average for the S&P 500.
Lou Brien, Market Strategist at DRW Trading, said: “It’s been really quiet today, with people doing last minute bookkeeping with the Fed, adjusting positions ahead of what they will do and say tomorrow. Expectations for a 50 basis point hike have been pretty well established at this point.”
The dollar index, which measures the US currency against six others and hit a 20-year high last week, fell 0.3 percent.
Treasury yields have been on the move for weeks in anticipation of the Fed’s decision. The two-year note in April rose to its highest level since 2018. The rise in the 10-year yield from 2 to 3 percent was the fastest increase since the end of 2010.
Sovereign debt yields also rose in Europe. Germany’s 10-year Bund yield, which started the year below zero, topped 1 percent for the first time in seven years in European morning trading before settling at 0.96 percent. The UK equivalent briefly crossed 2 percent before paring some of its gains to trade 1.96 percent.
The jolt in bond markets came after the Reserve Bank of Australia raised interest rates for the first time in more than a decade on Tuesday, raising borrowing costs by 0.25 percentage point more than expected. predicted and citing inflation that had “raised up more quickly. , and at a higher level than expected”.
Australia’s 10-year bond yield hit 3.4%, a level not seen since 2014, while its more policy-sensitive two-year yield rose 0.2 percentage point to 2.73%.
The Bank of England is also expected to raise UK interest rates to their highest level since 2009 on Thursday. BoE Governor Andrew Bailey said last month that the institution walked a “very, very fine line” between tackling consumer price increases and avoiding recession risks by raising borrowing costs too high.
